Banner Corporation Reports Net Income Of $25.4 Million, Or $1.27 Per Diluted Share, In Second Quarter; Net Income Highlighted By Strong Revenue Generation And Improved Credit Quality, Leading To A Recovery Of The Deferred Tax Asset

Banner Corporation (NASDAQ:BANR), the parent company of Banner Bank and Islanders Bank, today reported that net income increased to $25.4 million in the second quarter of 2012, compared to net income of $9.2 million in the preceding quarter and $2.2 million in the second quarter a year ago. For the first six months of 2012, Banner reported net income of $34.6 million, compared to a net loss of $5.6 million in the same period a year ago. Banner’s results for the quarter ended June 30, 2012 include a $31.8 million tax benefit as a result of the reversal of its deferred tax asset valuation allowance, which was partially offset by a net loss of $19.1 million for fair value adjustments.

“Banner’s continued successful execution of its strategic turnaround plan and return to profitability was punctuated in the second quarter by the elimination of nearly all of the valuation allowance against our deferred tax asset. This decision reflects our confidence in the sustainability of our future profitability,” said Mark J. Grescovich, President and Chief Executive Officer. “However, the real highlights of the second quarter were our continued improvement in asset quality, customer account growth and record revenues from core operations. Banner’s second quarter revenues from core operations* (net interest income before the provision for loan losses plus total other operating income excluding fair value adjustments) increased 8% when compared to the second quarter a year ago. Our net interest margin expanded 17 basis points to 4.26% in the second quarter compared to 4.09% in the second quarter a year ago. Our deposit fees and other service charge income remained strong, increasing by 10% compared to the second quarter a year ago, and revenues from mortgage banking operations were more than three times larger than the second quarter of 2011. This progress clearly demonstrates our strategic turnaround plan is effective and is building shareholder value.”

In the second quarter of 2012, Banner paid a $1.6 million dividend on its $124 million of Series A senior preferred stock and accrued $454,000 for related discount accretion. Including the preferred stock dividend and related accretion, net income available to common shareholders was $1.27 per share for the second quarter of 2012, compared to net income available to common shareholders of $0.40 per share in the first quarter of 2012 and $0.01 per share for the second quarter a year ago.

Second Quarter 2012 Highlights (compared to second quarter 2011 except as noted)
  • Net income was $25.4 million, compared to $2.2 million in the second quarter a year ago.
  • Revenues from core operations* increased 8% to $52.3 million.
  • The net interest margin improved to 4.26%, compared to 4.11% in the preceding quarter and 4.09% in the second quarter of 2011.
  • Net interest income before provision for loan losses increased 3%.
  • Deposit fees and other service charges increased 10%.
  • Revenues from mortgage banking increased 234%.
  • Non-performing assets decreased to $73.2 million, or 1.73% of total assets, at June 30, 2012, a 21% decrease compared to three months earlier and a 61% decrease compared to a year earlier.
  • Non-performing loans decreased to $47.4 million at June 30, 2012, a 27% decrease compared to three months earlier and a 59% decrease compared to a year earlier.
  • The ratio of tangible common equity to tangible assets increased to 10.92% at June 30, 2012.

*Earnings information excluding fair value and other-than-temporary impairment (OTTI) adjustments (alternately referred to as other operating income from core operations or revenues from core operations) represent non-GAAP (Generally Accepted Accounting Principles) financial measures. Management has presented these non-GAAP financial measures in this earnings release because it believes that they provide useful and comparative information to assess trends in the Company’s core operations reflected in the current quarter’s results. Where applicable, the Company has also presented comparable earnings information using GAAP financial measures.

Credit Quality

“Improving our risk profile and aggressively managing our troubled assets has been, and will remain, a primary focus for our management team,” said Grescovich. “As a result of this focus, credit costs continued to decline and were significantly below those of a year ago, and although they remain above our long-term goal, we are confident credit costs will decline further in the near term. All of our key credit quality metrics have improved and Banner’s reserve levels are substantial.”

Banner recorded a $4.0 million provision for loan losses in the second quarter of 2012, compared to a $5.0 million provision in the preceding quarter and an $8.0 million provision in the second quarter a year ago. The allowance for loan losses at June 30, 2012 totaled $80.2 million, representing 2.50% of total loans outstanding and 169% of non-performing loans. Non-performing loans decreased 27% to $47.4 million at June 30, 2012, compared to $64.9 million three months earlier, and decreased 59% when compared to $115.2 million a year earlier.

Banner’s real estate owned and repossessed assets decreased 7% to $25.8 million at June 30, 2012, compared to $27.7 million three months earlier and decreased 64% when compared to $71.3 million a year ago. Net charge-offs in the second quarter of 2012 totaled $5.3 million, or 0.16% of average loans outstanding, compared to $6.4 million, or 0.20% of average loans outstanding for the first quarter of 2012 and $13.6 million, or 0.41% of average loans outstanding, for the second quarter a year ago.

At June 30, 2012, Banner’s non-performing assets were 1.73% of total assets, compared to 2.24% at March 31, 2012 and 4.48% a year ago. Non-performing assets decreased 21% to $73.2 million at June 30, 2012, compared to $93.1 million three months earlier and decreased 61% when compared to $188.4 million a year ago.

Income Statement Review

“The improvement in our net interest margin reflects continuing reductions in our funding costs, particularly in our deposit costs, and a significant reduction in the adverse effect of non-performing assets, as well as collection of some previously unrecognized interest income,” said Grescovich. Banner’s net interest margin was 4.26% in the second quarter of 2012, compared to 4.11% in the preceding quarter and 4.09% in the second quarter a year ago. In the first six months of the year, the net interest margin was 4.19% compared to 4.01% in the first six months of 2011.

Deposit costs decreased by four basis points in the second quarter compared to the preceding quarter and 32 basis points compared to the second quarter a year earlier. Total funding costs for the second quarter of 2012 decreased 11 basis points compared to the previous quarter and 37 basis points from the second quarter a year ago. Asset yields increased four basis points compared to the prior quarter and decreased 19 basis points from the second quarter a year ago. Loan yields increased four basis points compared to the preceding quarter and decreased 16 basis points from the second quarter a year ago. Nonaccrual loans reduced the margin by approximately eight basis points in the second quarter of 2012 compared to approximately 13 basis points in the preceding quarter and approximately 23 basis points in the second quarter of 2011. The collection of previously unrecognized interest on certain nonaccrual loans added five basis points to the margin in the current quarter ended June 30, 2012.

“The continued growth in core deposits and the reduced drag from non-performing assets over the past year have led to a solid increase in our revenues from core operations* compared to the second quarter a year ago,” said Grescovich. Second quarter net interest income, before the provision for loan losses, was $42.3 million, compared to $41.1 million in the preceding quarter and $41.2 million in the second quarter a year ago. In the first six months of 2012, net interest income, before the provision for loan losses, was $83.4 million compared to $81.3 million in the first six months of 2011. Revenues from core operations* were $52.3 million in the second quarter compared to $50.4 million in the first quarter of 2012 and $48.5 million in the second quarter a year ago. Year-to-date revenues from core operations* increased 7% to $102.7 million compared to $95.6 million in the same period a year ago.

“The decision to reverse the deferred tax asset valuation allowance during the second quarter reflects Banner’s return to profitability and our expectation of sustainable profitability in future periods,” said Grescovich. “This expectation also led to the significant adjustment of the fair value estimate for the junior subordinated debentures issued by the Company. The substantial changes to both of these significant accounting estimates are directly linked to the improved performance and profitability of the Company. We expect to recover the remaining $7.0 million balance of the deferred tax asset valuation allowance as an offset to our provision for income taxes in the third and fourth quarters of 2012.”

Banner’s second quarter 2012 results included a net loss of $19.1 million for fair value adjustments as a result of changes in the valuation of financial instruments carried at fair value. The net fair value adjustments largely resulted from a $21.2 million increase in the estimated value of the junior subordinated debentures issued by the Company, which was partially offset by increases in the estimated value of similar trust preferred securities owned by the Company. In the preceding quarter, Banner recorded a net gain of $1.7 million for fair value adjustments and in the second quarter of 2011 Banner recorded a net gain of $1.9 million for fair value adjustments. Banner’s year-to-date results included a net loss of $17.4 million for fair value adjustments compared to a net gain of $2.2 million for the same period a year ago.

Total other operating income (loss), which includes the changes in the valuation of financial instruments, was a loss of $9.1 million in the second quarter of 2012 compared to a net gain of $11.0 million in the preceding quarter and a net gain of $9.3 million in the second quarter a year ago. In the first six months of 2012, total other operating income was a net gain of $1.9 million compared to a net gain of $16.5 million in the first six months of 2011. Other operating income from core operations* (total other operating income, excluding fair value adjustments) for the current quarter was $10.0 million, compared to $9.3 million for the preceding quarter and $7.3 million for the second quarter a year ago, reflecting strong growth in payment processing and mortgage banking revenues.

As a result of continued account growth over recent periods and increased customer activity, deposit fees and other service charges were $6.3 million in the second quarter of 2012, compared to $5.9 million in the preceding quarter and a 10% increase compared to $5.7 million in the second quarter a year ago. Significant homeowner refinance activity contributed to strong revenues from mortgage banking activities, which increased 8% to $2.9 million in the second quarter of 2012, compared to $2.6 million in the immediately preceding quarter. Income from mortgage banking operations was $855,000 in the second quarter of 2011.

“Operating expenses declined for the second quarter compared to the preceding quarter and the second quarter a year ago, largely due to lower costs associated with the real estate owned portfolio, particularly valuation adjustments, and a reduction in our deposit insurance premiums,” said Grescovich. “We believe credit costs, including REO expenses, will continue to decline as we continue to resolve remaining problem assets.”

Total other operating expenses (non-interest expenses) were $35.7 million in the second quarter of 2012, compared to $37.9 million in the preceding quarter and $40.3 million in the second quarter of 2011. In the first six months of 2012, total other operating expenses were $73.6 million compared to $78.4 million in the first six months of 2011. The decrease was largely a result of decreased costs related to real estate owned and FDIC deposit insurance.

Balance Sheet Review

“Loan balances declined modestly compared to the previous quarter primarily as a result of the impact of refinancing activity on residential mortgage loans and further reductions in commercial construction and land development loans. Aside from seasonal increases in agricultural loans, net loan originations and credit line utilizations have remained modest, and a bit disappointing, as the weak economy continues to temper loan demand by both businesses and consumers. We expect a continued challenging economic environment going forward as businesses and consumers maintain a cautious approach to spending and borrowing,” said Grescovich.

Net loans were $3.13 billion at June 30, 2012, compared to $3.15 billion at March 31, 2012 and $3.21 billion a year ago. Commercial and agricultural business loans were $811.8 million at June 30, 2012 compared to $798.5 million at March 31, 2012 and $774.7 million a year ago. Commercial real estate and multifamily real estate loans were $1.22 billion at June 30, 2012, compared to $1.21 billion at March 31, 2012 and $1.24 billion at June 30, 2011.

The combined total of securities at fair value, available for sale and held to maturity, was $596.8 million at June 30, 2012 compared to $541.3 million at March 31, 2012 and $453.2 million at June 30, 2011. The aggregate total of securities and interest-bearing deposits increased to $729.3 million at June 30, 2012 compared to $685.2 million at March 31, 2012 and $621.4 million a year ago. The change in the mix of interest-bearing deposits and securities holdings compared to a year ago reflects a modest extension of the expected duration of this aggregate position designed to increase the yield relative to interest-bearing deposits. The securities purchased in recent periods were primarily short- to intermediate-term U.S. Government Agency notes and mortgage-backed securities and, to a lesser extent, intermediate-term tax-exempt municipal securities.

Deposits totaled $3.43 billion at June 30, 2012, the same as at the end of the preceding quarter. Deposits were $3.47 million at June 30, 2011. Non-interest-bearing accounts increased 4% to $804.6 million at June 30, 2012, compared to $771.8 million at March 31, 2012, and increased 25% compared to $645.8 million at June 30, 2011. Interest-bearing transaction and savings accounts were $1.45 billion at June 30, 2012, compared to $1.46 billion at March 31, 2012 and $1.42 billion a year ago.

“The improvements in our deposit mix are reflective of our super community bank strategy that is reducing our funding cost by remixing our deposits away from high-priced CDs, growing new client relationships, and improving our core funding position. All of this growth is organic growth from our existing branch network,” said Grescovich. Banner’s cost of deposits declined four basis points to 0.48% for the quarter ended June 30, 2012 compared to 0.52% for the quarter ended March 31, 2012, and declined 32 basis points from 0.80% for the quarter ended June 30, 2011.

Assets totaled $4.22 billion at June 30, 2012, compared to $4.16 billion at the end of the preceding quarter and $4.21 billion a year ago. At June 30, 2012, total stockholders’ equity was $587.2 million, including $121.6 million attributable to preferred stock, and common stockholders’ equity was $465.6 million, or $24.80 per share. Banner had 18.8 million shares of common stock outstanding at June 30, 2012, compared to 16.7 million shares of common stock outstanding a year ago. At June 30, 2012, tangible common stockholders’ equity, which excludes other intangible assets and preferred stock, was $460.3 million, or 10.92% of tangible assets, compared to $421.9 million, or 10.15% of tangible assets at March 31, 2012 and $383.7 million, or 9.14% of tangible assets a year ago.

Banner Corporation and its subsidiary banks continue to maintain capital levels significantly in excess of the requirements to be categorized as “well-capitalized” under applicable regulatory standards. Banner Corporation’s Tier 1 leverage capital to average assets ratio increased to 15.07% and its total capital to risk-weighted assets ratio increased to 19.76% at June 30, 2012.

Conference Call

Banner will host a conference call on Thursday, July 26, 2012, at 8:00 a.m. PDT, to discuss its second quarter results. The conference call can be accessed live by telephone at (480) 629-9645 to participate in the call. To listen to the call online, go to the Company’s website at www.bannerbank.com. A replay will be available for a week at (303) 590-3030, using access code 4548321.

About the Company

Banner Corporation is a $4.22 billion bank holding company operating two commercial banks in Washington, Oregon and Idaho. Banner serves the Pacific Northwest region with a full range of deposit services and business, commercial real estate, construction, residential, agricultural and consumer loans. Visit Banner Bank on the Web at www.bannerbank.com.

This press release contains statements that the Company believes are “forward-looking statements.” These statements relate to the Company’s financial condition, results of operations, plans, objectives, future performance or business. You should not place undue reliance on these statements, as they are subject to risks and uncertainties. When considering these forward-looking statements, you should keep in mind these risks and uncertainties, as well as any cautionary statements the Company may make. Moreover, you should treat these statements as speaking only as of the date they are made and based only on information then actually known to the Company. There are a number of important factors that could cause future results to differ materially from historical performance and these forward-looking statements. Factors which could cause actual results to differ materially include, but are not limited to, the credit risks of lending activities, including changes in the level and trend of loan delinquencies and write-offs and changes in our allowance for loan losses and provision for loan losses that may be impacted by deterioration in the housing and commercial real estate markets and may lead to increased losses and non-performing assets and may result in our allowance for loan losses not being adequate to cover actual losses; changes in general economic conditions, either nationally or in our market areas; changes in the levels of general interest rates and the relative differences between short and long-term interest rates, loan and deposit interest rates, our net interest margin and funding sources; fluctuations in the demand for loans, the number of unsold homes, land and other properties and fluctuations in real estate values in our market areas; secondary market conditions for loans and our ability to sell loans in the secondary market; results of examinations of us by the Board of Governors of the Federal Reserve System and of our bank subsidiaries by the FDIC, the Washington Department of Financial Institutions or other regulatory authorities, including the possibility that any such regulatory authority may, among other things, institute a formal or informal enforcement action against us or any of the Banks which could require us to increase our reserve for loan losses, write-down assets, change our regulatory capital position or affect our ability to borrow funds or maintain or increase deposits, which could adversely affect our liquidity and earnings; legislative or regulatory changes that adversely affect our business including changes in regulatory policies and principles, or the interpretation of regulatory capital or other rules; our ability to attract and retain deposits; increases in premiums for deposit insurance; our ability to control operating costs and expenses; the use of estimates in determining fair value of certain of our assets and liabilities, which estimates may prove to be incorrect and result in significant changes in valuations; staffing fluctuations in response to product demand or the implementation of corporate strategies that affect our workforce and potential associated charges; the failure or security breach of computer systems on which we depend; our ability to retain key members of our senior management team; costs and effects of litigation, including settlements and judgments; our ability to implement our business strategies; our ability to successfully integrate any assets, liabilities, customers, systems, and management personnel we may acquire into our operations and our ability to realize related revenue synergies and cost savings within expected time frames and any goodwill charges related thereto; our ability to manage loan delinquency rates; increased competitive pressures among financial services companies; changes in consumer spending, borrowing and savings habits; the availability of resources to address changes in laws, rules, or regulations or to respond to regulatory actions; our ability to pay dividends on our common and preferred stock and interest or principal payments on our junior subordinated debentures; adverse changes in the securities markets; inability of key third-party providers to perform their obligations to us; changes in accounting policies and practices, as may be adopted by the financial institution regulatory agencies or the Financial Accounting Standards Board including additional guidance and interpretation on accounting issues and details of the implementation of new accounting methods; the economic impact of war or terrorist activities; other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services; and other risks detailed in Banner Corporation’s reports filed with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the year ended December 31, 2011. We do not undertake and specifically disclaim any obligation to revise any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements. These risks could cause our actual results for the remainder of 2012 and beyond to differ materially from those expressed in any forward-looking statements by, or on behalf of, us, and could negatively affect our operating and stock price performance.
         
BANR - Second Quarter 2012 Results

RESULTS OF OPERATIONS
Quarters Ended Six Months Ended
(in thousands except shares and per share data) Jun 30, 2012 Mar 31, 2012 Jun 30, 2011 Jun 30, 2012 Jun 30, 2011
     
 
INTEREST INCOME:
Loans receivable $ 44,040 $ 43,988 $ 46,846 $ 88,028

$
93,601
Mortgage-backed securities 995 927 859 1,922 1,734
Securities and cash equivalents 2,230   2,283   2,183   4,513   4,216  
47,265 47,198 49,888 94,463 99,551
 
INTEREST EXPENSE:
Deposits 4,035 4,448 7,014 8,483 14,826
Federal Home Loan Bank advances 64 63 64 127 242
Other borrowings 74 549 568 623 1,147
Junior subordinated debentures 802   1,012   1,041   1,814   2,079  
4,975   6,072   8,687   11,047   18,294  
Net interest income before provision for loan losses 42,290 41,126 41,201 83,416 81,257
 
PROVISION FOR LOAN LOSSES 4,000   5,000   8,000   9,000   25,000  
Net interest income 38,290 36,126 33,201 74,416 56,257
 
OTHER OPERATING INCOME:
Deposit fees and other service charges 6,283 5,869 5,693 12,152 10,972
Mortgage banking operations 2,855 2,649 855 5,504 1,817
Loan servicing fees 343 217 397 560 653
Miscellaneous 485   551   369   1,036   862  
9,966 9,286 7,314 19,252 14,304
Gain (loss) on sale of securities 29 - - - - 29 - -
Net change in valuation of financial instruments carried at fair value (19,059 ) 1,685   1,939   (17,374 ) 2,195  
Total other operating income (loss) (9,064 ) 10,971 9,253 1,907 16,499
 
OTHER OPERATING EXPENSE:
Salary and employee benefits 19,390 19,510 18,288 38,900 35,543
Less capitalized loan origination costs (2,747 ) (2,250 ) (1,948 ) (4,997 ) (3,668 )
Occupancy and equipment 5,204 5,477 5,436 10,681 10,830
Information / computer data services 1,746 1,515 1,521 3,261 3,088
Payment and card processing services 2,116 1,890 1,939 4,006 3,586
Professional services 1,224 1,344 1,185 2,568 2,857
Advertising and marketing 1,650 2,066 1,903 3,716 3,643
Deposit insurance 816 1,363 1,389 2,179 3,358
State/municipal business and use taxes 565 568 544 1,133 1,038
Real estate operations 1,969 2,598 6,568 4,567 11,199
Amortization of core deposit intangibles 523 552 570 1,075 1,167
Miscellaneous 3,210   3,280   2,860   6,490   5,758  
Total other operating expense 35,666   37,913   40,255   73,579   78,399  
Income (loss) before provision for (benefit from) income taxes (6,440 ) 9,184 2,199 2,744 (5,643 )
 
PROVISION FOR (BENEFIT FROM ) INCOME TAXES (31,830 ) - -   - -   (31,830 ) - -  
 
NET INCOME (LOSS) 25,390   9,184   2,199   34,574   (5,643 )
 
PREFERRED STOCK DIVIDEND AND DISCOUNT ACCRETION:
Preferred stock dividend 1,550 1,550 1,550 3,100 3,100
Preferred stock discount accretion 454   454   425   908   851  
 
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS $ 23,386   $ 7,180   $ 224   $ 30,566   $ (9,594 )
 
Earnings (loss) per share available to common shareholder
Basic $ 1.27 $ 0.40 $ 0.01 $ 1.69 $ (0.58 )
Diluted $ 1.27 $ 0.40 $ 0.01 $ 1.69 $ (0.58 )
 
Cumulative dividends declared per common share $ 0.01 $ 0.01 $ 0.01 $ 0.02 $ 0.08
 
Weighted average common shares outstanding
Basic 18,404,680 17,761,667 16,535,082 18,051,636 16,404,079
Diluted 18,444,276 17,790,402 16,535,082 18,085,801 16,404,079
 
Common shares issued in connection with exercise of stock options or DRIP 777,051 474,296 227,534 1,251,347 506,474
 
       
BANR - Second Quarter 2012 Results

FINANCIAL CONDITION
(in thousands except shares and per share data) Jun 30, 2012 Mar 31, 2012 Jun 30, 2011 Dec 31, 2011
 
 

ASSETS
Cash and due from banks $ 56,640 $ 55,723 $ 48,246 $ 62,678
Federal funds and interest-bearing deposits 132,536 143,885 168,198 69,758
Securities - at fair value 77,368 77,706 89,374 80,727
Securities - available for sale 436,130 386,716 287,255 465,795
Securities - held to maturity 83,312 76,853 76,596 75,438
Federal Home Loan Bank stock 37,371 37,371 37,371 37,371
 
Loans receivable:
Held for sale

6,752
4,623 1,907 3,007
Held for portfolio

3,205,505
3,225,039 3,304,760 3,293,331
Allowance for loan losses (80,221) (81,544) (92,000) (82,912)
3,132,036 3,148,118 3,214,667 3,213,426
 
Accrued interest receivable 14,656 16,047 15,907 15,570
Real estate owned held for sale, net 25,816 27,723 71,205 42,965
Property and equipment, net 90,228 90,106 93,532 91,435
Other intangibles, net 5,252 5,777 7,442 6,331
Bank-owned life insurance 59,800 59,056 57,578 58,563
Other assets 70,282 35,683 38,696 37,255
$ 4,221,427 $ 4,160,764 $ 4,206,067 $ 4,257,312
 

LIABILITIES
 
Deposits:
Non-interest-bearing $ 804,562 $ 771,812 $ 645,778 $ 777,563
Interest-bearing transaction and savings accounts 1,449,890 1,457,030 1,422,290 1,447,594
Interest-bearing certificates 1,171,297 1,197,328 1,398,332 1,250,497
3,425,749 3,426,170 3,466,400 3,475,654
 
Advances from Federal Home Loan Bank at fair value 10,423 10,467 10,572 10,533
Customer repurchase agreements and other borrowings 90,030 91,253 136,285 152,128
Junior subordinated debentures at fair value 70,553 49,368 47,986 49,988
 
Accrued expenses and other liabilities 23,564 21,136 19,115 23,253
Deferred compensation 13,916 13,580 14,683 13,306
3,634,235 3,611,974 3,695,041 3,724,862
 

STOCKHOLDERS' EQUITY
 
Preferred stock - Series A 121,610 121,156 119,851 120,702
Common stock 554,866 540,068 517,782 531,149
Retained earnings (accumulated deficit) (89,266) (112,465) (126,268) (119,465)
Other components of stockholders' equity (18) 31 (339) 64
587,192 548,790 511,026 532,450
 
$ 4,221,427 $ 4,160,764 $ 4,206,067 $ 4,257,312
 
Common Shares Issued:
Shares outstanding at end of period 18,804,819 18,027,768 16,668,694 17,553,472
Less unearned ESOP shares at end of period 34,340 34,340 34,340 34,340
Shares outstanding at end of period excluding unearned ESOP shares 18,770,479 17,993,428 16,634,354 17,519,132
 
Common stockholders' equity per share (1) $ 24.80 $ 23.77 $ 23.52 $ 23.50
Common stockholders' tangible equity per share (1) (2) $ 24.52 $ 23.45 $ 23.07 $ 23.14
 
Common stockholders' tangible equity to tangible assets (2) 10.92% 10.15% 9.14% 9.54%
Consolidated Tier 1 leverage capital ratio 15.07% 14.00% 12.90% 13.44%
 

(1) - Calculation is based on number of common shares outstanding at the end of the period rather than weighted average shares outstanding and excludes unallocated shares in the ESOP.

 

(2) - Common stockholders' tangible equity excludes preferred stock, core deposit and other intangibles. Tangible assets excludes other intangible assets. These ratios represent non-GAAP financial measures.

 
         
BANR - Second Quarter 2012 Results
ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
   
Jun 30, 2012 Mar 31, 2012 Jun 30, 2011 Dec 31, 2011

LOANS (including loans held for sale):
Commercial real estate
Owner occupied $ 477,621 $ 468,318 $ 507,751 $ 469,806
Investment properties 613,965 612,617 582,569 621,622
Multifamily real estate 130,319 132,306 147,951 139,710
Commercial construction 23,808 40,276 35,790 42,391
Multifamily construction 18,132 20,654 20,552 19,436
One- to four-family construction 157,301 148,717 140,669 144,177
Land and land development
Residential 83,185 89,329 128,920 97,491
Commercial 11,451 12,044 29,347 15,197
Commercial business 600,046 609,497 566,243 601,440
Agricultural business including secured by farmland 211,705 188,955 208,485 218,171
One- to four-family real estate 607,489 619,511 658,216 642,501
Consumer 103,504 106,978 97,396 103,347
Consumer secured by one- to four-family real estate 173,731 180,460 182,778 181,049
 
Total loans outstanding $ 3,212,257 $ 3,229,662 $ 3,306,667 $ 3,296,338
 
Restructured loans performing under their restructured terms $ 58,010 $ 53,391 $ 55,652 $ 54,533
 
Loans 30 - 89 days past due and on accrual $ 5,504 $ 14,336 $ 11,560 $ 9,962
 
Total delinquent loans (including loans on non-accrual) $ 52,866 $ 79,249 $ 126,805 $ 85,274
 
Total delinquent loans / Total loans outstanding 1.65% 2.45% 3.83% 2.59%
 
 
GEOGRAPHIC CONCENTRATION OF LOANS AT

June 30, 2012
Washington Oregon Idaho Other Total
 
Commercial real estate
Owner occupied $ 367,377 $ 50,164 $ 57,022 $ 3,058 $ 477,621
Investment properties 469,363 94,893 42,657 7,052 613,965
Multifamily real estate 110,342 12,889 6,738 350 130,319
Commercial construction 15,767 5,415 2,626 - - 23,808
Multifamily construction 16,930 1,202 - - - - 18,132
One- to four-family construction 86,186 69,101 2,014 - - 157,301
Land and land development
Residential 40,903 40,184 2,098 - - 83,185
Commercial 8,770 885 1,796 - - 11,451
Commercial business 383,040 75,556 60,592 80,858 600,046
Agricultural business including secured by farmland 110,608 38,650 62,447 - - 211,705
One- to four-family real estate 371,458 208,490 25,360 2,181 607,489
Consumer 69,701 28,566 5,236 1 103,504
Consumer secured by one- to four-family real estate 117,685 43,867 11,645 534 173,731
 
Total loans outstanding $ 2,168,130 $ 669,862 $ 280,231 $ 94,034 $ 3,212,257
 
Percent of total loans 67.5% 20.9% 8.7% 2.9% 100.0%
 
 
DETAIL OF LAND AND LAND DEVELOPMENT LOANS AT

June 30, 2012
Washington Oregon Idaho Other Total
 
Residential
Acquisition & development $ 7,071 $ 15,975 $ 1,738 $ - - $ 24,784
Improved lots 21,980 21,542 279 - - 43,801
Unimproved land 11,852 2,667 81 - - 14,600
 
Total residential land and development $ 40,903 $ 40,184 $ 2,098 $ - - $ 83,185
Commercial & industrial
Acquisition & development $ 1,464 $ - - $ 481 $ - - $ 1,945
Improved land 3,269 - - 570 - - 3,839
Unimproved land 4,037 885 745 - - 5,667
 
Total commercial land and development $ 8,770 $ 885 $ 1,796 $ - - $ 11,451
 
         
BANR - Second Quarter 2012 Results
ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
       
Quarters Ended Six Months Ended
CHANGE IN THE Jun 30, 2012 Mar 31, 2012 Jun 30, 2011 Jun 30, 2012 Jun 30, 2011

ALLOWANCE FOR LOAN LOSSES
 
Balance, beginning of period $ 81,544 $ 82,912 $ 97,632 $ 82,912 $ 97,401
 
Provision 4,000 5,000 8,000 9,000 25,000
 
Recoveries of loans previously charged off:
Commercial real estate 18 614 15 632 15
Multifamily real estate - - - - - - - - - -
Construction and land 1,050 370 716 1,420 751
One- to four-family real estate 374 5 29 379 81
Commercial business 639 236 76 875 157
Agricultural business, including secured by farmland 15 - - 5 15 5
Consumer 195 136 84 331 162
2,291 1,361 925 3,652 1,171
Loans charged off:
Commercial real estate (1,259) (1,323) (1,871) (2,582) (2,860)
Multifamily real estate - - - - (244) - - (671)
Construction and land (1,703) (2,924) (6,077) (4,627) (16,614)
One- to four-family real estate (1,906) (966) (1,894) (2,872) (4,103)
Commercial business (2,297) (1,407) (3,993) (3,704) (6,361)
Agricultural business, including secured by farmland - - (275) (166) (275) (289)
Consumer (449) (834) (312) (1,283) (674)
(7,614) (7,729) (14,557) (15,343) (31,572)
Net charge-offs (5,323) (6,368) (13,632) (11,691) (30,401)
 
Balance, end of period $ 80,221 $ 81,544 $ 92,000 $ 80,221 $ 92,000
 
Net charge-offs / Average loans outstanding 0.16% 0.20% 0.41% 0.36% 0.91%
 
 
ALLOCATION OF

ALLOWANCE FOR LOAN LOSSES
Jun 30, 2012 Mar 31, 2012 Jun 30, 2011 Dec 31, 2011
Specific or allocated loss allowance
Commercial real estate $ 16,834 $ 17,083 $ 13,087 $ 16,457
Multifamily real estate 5,108 3,261 5,404 3,952
Construction and land 16,974 15,871 25,976 18,184
One- to four-family real estate 14,213 12,869 8,254 12,299
Commercial business 12,352 13,123 19,912 15,159
Agricultural business, including secured by farmland 1,294 1,887 1,409 1,548
Consumer 1,365 1,274 1,445 1,253
 
Total allocated 68,140 65,368 75,487 68,852
 
Estimated allowance for undisbursed commitments 639 651 1,001 678
Unallocated 11,442 15,525 15,512 13,382
 
Total allowance for loan losses $ 80,221 $ 81,544 $ 92,000 $ 82,912
 
Allowance for loan losses / Total loans outstanding 2.50% 2.52% 2.78% 2.52%
 
Allowance for loan losses / Non-performing loans 169% 126% 80% 110%
 
       
BANR - Second Quarter 2012 Results
ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
         
Jun 30, 2012 Mar 31, 2012 Jun 30, 2011 Dec 31, 2011
 

NON-PERFORMING ASSETS
 
Loans on non-accrual status
Secured by real estate:
Commercial $ 7,580 $ 10,541 $ 22,421 $ 9,226
Multifamily - - - - 1,560 362
Construction and land 8,939 18,601 53,529 27,731
One- to four-family 16,170 19,384 15,435 17,408
Commercial business 8,600 10,121 15,264 13,460
Agricultural business, including secured by farmland 1,010 1,481 1,342 1,896
Consumer 2,882 2,572 4,400 2,905
       
45,181 62,700 113,951 72,988
 
Loans more than 90 days delinquent, still on accrual
Secured by real estate:
Commercial - - - - - - - -
Multifamily - - - - - - - -
Construction and land - - - - - - - -
One- to four-family 2,142 2,129 622 2,147
Commercial business - - - - 1 4
Agricultural business, including secured by farmland - - - - 545 - -
Consumer 39 84 126 173
       
2,181 2,213 1,294 2,324
       
Total non-performing loans 47,362 64,913 115,245 75,312
Securities on non-accrual - - 500 1,896 500
Real estate owned (REO) and repossessed assets 25,830 27,731 71,265 43,039
 
Total non-performing assets $ 73,192 $ 93,144 $ 188,406 $ 118,851
 
Total non-performing assets / Total assets 1.73% 2.24% 4.48% 2.79%
 
DETAIL & GEOGRAPHIC CONCENTRATION OF
NON-PERFORMING ASSETS AT
June 30, 2012 Washington Oregon Idaho Total
Secured by real estate:
Commercial $ 7,445 $ - - $ 135 $ 7,580
Multifamily - - - - - - - -
Construction and land
One- to four-family construction 1,516 2,046 243 3,805
Residential land acquisition & development 244 1,835 - - 2,079
Residential land improved lots 115 1,764 - - 1,879
Residential land unimproved 47 666 80 793
Commercial land improved 294 - - - - 294
Commercial land unimproved 89 - - - - 89
Total construction and land 2,305 6,311 323 8,939
One- to four-family 13,465 3,481 1,366 18,312
Commercial business 8,185 146 269 8,600
Agricultural business, including secured by farmland 875 - - 135 1,010
Consumer 2,338 11 572 2,921
       
Total non-performing loans 34,613 9,949 2,800 47,362
Securities on non-accrual - - - - - - - -
Real estate owned (REO) and repossessed assets 12,117 10,384 3,329 25,830
       
Total non-performing assets at end of the period $ 46,730 $ 20,333 $ 6,129 $ 73,192
 
         
BANR - Second Quarter 2012 Results
ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
 
Quarters Ended Six Months Ended
 

REAL ESTATE OWNED
Jun 30, 2012 Jun 30, 2011 Jun 30, 2012   Jun 30, 2011
 
Balance, beginning of period $ 27,723 $ 94,945 $ 42,965

$
100,872
Additions from loan foreclosures 6,886 11,918 8,487 26,834
Additions from capitalized costs 7 1,532 134 3,147
Dispositions of REO (7,799 ) (32,437 ) (23,240 ) (51,331 )
Gain (loss) on sale of REO 566 58 666 (479 )
Valuation adjustments in the period (1,567 ) (4,811 )   (3,196 ) (7,838 )
 
Balance, end of period $ 25,816   $ 71,205   $ 25,816   $ 71,205  
 
Quarters Ended
 

REAL ESTATE OWNED - FIVE COMPARATIVE QUARTERS
Jun 30, 2012 Mar 31, 2012 Dec 31, 2011 Sep 30, 2011 Jun 30, 2011
 
Balance, beginning of period $ 27,723 $ 42,965 $ 66,459 $ 71,205 $ 94,945
Additions from loan foreclosures 6,886 1,601 7,482 18,881 11,918
Additions from capitalized costs 7 127 150 1,107 1,532
Dispositions of REO (7,799 ) (15,441 ) (28,299 ) (19,440 ) (32,437 )
Gain (loss) on sale of REO 566 100 (170 ) (725 ) 58
Valuation adjustments in the period (1,567 ) (1,629 ) (2,657 ) (4,569 ) (4,811 )
 
Balance, end of period $ 25,816   $ 27,723   $ 42,965   $ 66,459   $ 71,205  
 

REAL ESTATE OWNED - BY TYPE AND STATE
Washington Oregon Idaho Total
 
Commercial real estate $ 340 $ 301 $ 2,089 $ 2,730
One- to four-family construction 405 389 - - 794
Land development- commercial 3,225 37 195 3,457
Land development- residential 4,120 6,871 187 11,178
One- to four-family real estate 4,013   2,786   858   7,657  
 
Total $ 12,103   $ 10,384   $ 3,329   $ 25,816  
 
         
BANR - Second Quarter 2012 Results
ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
     
 

DEPOSITS & OTHER BORROWINGS
Jun 30, 2012 Mar 31, 2012 Jun 30, 2011 Dec 31, 2011
DEPOSIT COMPOSITION
 
Non-interest-bearing $ 804,562 $ 771,812 $ 645,778 $ 777,563
 
Interest-bearing checking 379,742 368,810 356,321 362,542
Regular savings accounts 664,736 673,704 631,688 669,596
Money market accounts 405,412 414,516 434,281 415,456
 
Interest-bearing transaction & savings accounts 1,449,890 1,457,030 1,422,290 1,447,594
 
Interest-bearing certificates 1,171,297 1,197,328 1,398,332 1,250,497
 
Total deposits $ 3,425,749 $ 3,426,170 $ 3,466,400 $ 3,475,654
 
 
INCLUDED IN TOTAL DEPOSITS
 
Public transaction accounts $ 73,507 $ 68,590 $ 72,181 $ 72,064
Public interest-bearing certificates 62,743 69,856 69,219 67,112
 
Total public deposits $ 136,250 $ 138,446 $ 141,400 $ 139,176
 
 
Total brokered deposits $ 23,521 $ 30,978 $ 73,161 $ 49,194
 
 
 
OTHER BORROWINGS
Customer repurchase agreements / "Sweep accounts" $ 90,030 $ 91,253 $ 85,822

$
102,131
Temporary liquidity guarantee notes - - - - 49,993 49,997
Other - - - - 470 - -
Total other borrowings $ 90,030 $ 91,253 $ 136,285

$
152,128
 
 
 
GEOGRAPHIC CONCENTRATION OF DEPOSITS AT
June 30, 2012 Washington Oregon Idaho Total
 
$ 2,600,221 $ 600,748 $ 224,780 $ 3,425,749
 
 
 
 
Minimum for Capital Adequacy

REGULATORY CAPITAL RATIOS AT
Actual or "Well Capitalized"
June 30, 2012 Amount Ratio Amount Ratio
 
Banner Corporation-consolidated
Total capital to risk-weighted assets $ 665,551 19.76% $ 269,458 8.00%
Tier 1 capital to risk-weighted assets 622,978 18.50% 134,729 4.00%
Tier 1 leverage capital to average assets 622,978 15.07% 165,339 4.00%
 
Banner Bank
Total capital to risk-weighted assets 542,314 16.97% 255,652 10.00%
Tier 1 capital to risk-weighted assets 501,906 15.71% 127,826 6.00%
Tier 1 leverage capital to average assets 501,906 12.84% 156,349 5.00%
 
Islanders Bank
Total capital to risk-weighted assets 31,364 16.79% 14,944 10.00%
Tier 1 capital to risk-weighted assets 29,023 15.54% 7,472 6.00%
Tier 1 leverage capital to average assets 29,023 12.70% 9,143 5.00%
 
         
BANR - Second Quarter 2012 Results
ADDITIONAL FINANCIAL INFORMATION
(dollars in thousands)
(rates / ratios annualized)
  Quarters Ended Six Months Ended
 

OPERATING PERFORMANCE
Jun 30, 2012 Mar 31, 2012 Jun 30, 2011 Jun 30, 2012 Jun 30, 2011
 
 
Average loans $ 3,232,204 $ 3,250,767 $ 3,333,102 $ 3,241,485 $ 3,341,487
Average securities 636,097 660,638 511,273 648,368 488,233
Average interest earning cash 122,846 111,536 196,211 117,191 252,094
Average non-interest-earning assets 174,566 185,035 215,494 179,613 224,414
 
Total average assets $ 4,165,713 $ 4,207,976 $ 4,256,080 $ 4,186,657 $ 4,306,228
 
Average deposits $ 3,410,249 $ 3,421,448 $ 3,504,884 $ 3,415,661 $ 3,532,796
Average borrowings 230,517 280,439 283,178 255,478 302,612
Average non-interest-bearing other liabilities (37,694) (36,699) (41,253) (37,196) (40,508)
 
Total average liabilities 3,603,072 3,665,188 3,746,809 3,633,943 3,794,900
 
Total average stockholders' equity 562,641 542,788 509,271 552,714 511,328
`
Total average liabilities and equity $ 4,165,713 $ 4,207,976 $ 4,256,080 $ 4,186,657 $ 4,306,228
 
Interest rate yield on loans 5.48% 5.44% 5.64% 5.46% 5.65%
Interest rate yield on securities 1.99% 1.92% 2.31% 1.95% 2.34%
Interest rate yield on cash 0.25% 0.23% 0.20% 0.24% 0.22%
 
Interest rate yield on interest-earning assets 4.76% 4.72% 4.95% 4.74% 4.92%
 
Interest rate expense on deposits 0.48% 0.52% 0.80% 0.50% 0.85%
Interest rate expense on borrowings 1.64% 2.33% 2.37% 2.02% 2.31%
 
Interest rate expense on interest-bearing liabilities 0.55% 0.66% 0.92% 0.61% 0.96%
 
Interest rate spread 4.21% 4.06% 4.03% 4.13% 3.96%
 
Net interest margin 4.26% 4.11% 4.09% 4.19% 4.01%
 
Other operating income / Average assets (0.88%) 1.05% 0.87% 0.09% 0.77%
 

Other operating income EXCLUDING fair value adjustments / Average assets (1)
0.97% 0.89% 0.69% 0.93% 0.67%
 
Other operating expense / Average assets 3.44% 3.62% 3.79% 3.53% 3.67%
 
Efficiency ratio (other operating expense / revenue) 107.34% 72.77% 79.79% 86.24% 80.20%
 
Efficiency ratio EXCLUDING fair value adjustments / Average assets (1) 68.21% 75.21% 82.97% 71.65% 82.04%
 
Return (Loss) on average assets 2.45% 0.88% 0.21% 1.66% (0.26%)
 
Return (Loss) on average equity 18.15% 6.81% 1.73% 12.58% (2.23%)
 
Return (Loss) on average tangible equity (2) 18.33% 6.88% 1.76% 12.71% (2.26%)
 
Average equity / Average assets 13.51% 12.90% 11.97% 13.20% 11.87%
 

(1) - Earnings information excluding fair value adjustments (alternately referred to as other operating income from core operations or revenues from core operations) represent non-GAAP financial measures.
 

(2) - Average tangible equity excludes core deposit and other intangibles and represents a non-GAAP financial measure.
 

Copyright Business Wire 2010

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